Ennis v. Comm'r of Internal Revenue (In re Estate of Kerdolff)

• Decision Date: 22 February 1972
• Docket Number: Docket No. 6132-70.
• Citation: 57 T.C. 643
• Parties: ESTATE OF ETHEL R. KERDOLFF, DECEASED, ROSELEE KERDOLFF ENNIS, EXECUTRIX, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

57 T.C. 643

ESTATE OF ETHEL R. KERDOLFF, DECEASED, ROSELEE KERDOLFF ENNIS, EXECUTRIX, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 6132-70.

United States Tax Court

Filed February 22, 1972.

Claude R. Sanders, for the petitioner

Edward G. Lavery, for the respondent

In 1959 decedent gratuitously transferred her house, in which she had lived since 1922 to her children and their respective spouses. She continued to live in the house until her death in 1967. Held: On the facts of record, decedent and her donees had an implied agreement or understanding that decedent would retain possession and enjoyment of the house for a period which did not in fact end before her death. Consequently, sec. 2036(a)(1), I.R.C. 1954, require that the value of the house be included in the value of decedent's gross estate.

FORRESTER, Judge:

Respondent has determined a deficiency in petitioner's estate tax of $9,803.70. The only issue presented for our decision is whether, under section 2036(a)(1),¹ the value of a personal residence is includable in the value of the gross estate of Ethel R. Kerdolff.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation and any exhibits attached thereto are incorporated herein by this reference.

Petitioner is Estate of Ethel R. Kerdolff, deceased, Roselee Kerdolff Ennis, executrix. At the time of the filing of the petition herein petitioner resided in Kansas City, Mo. On June 26, 1968, she filed a Federal estate tax return on behalf of the Estate of Ethel R. Kerdolff with the district director of internal revenue at St. Louis, Mo.

Ethel R. Kerdolff (hereinafter referred to as decedent) died testate on May 11, 1967, at the age of 80. The Probate Court of Jackson County, Mo., duly granted letters testamentary on May 19, 1967, appointing decedent's daughter, Roselee Kerdolff Ennis (hereinafter referred to as Rosalee), as executrix. Roselee has at all times since then acted in the capacity of executrix of her mother's estate.

From 1955 until her death, decedent suffered through a long history of circulatory problems.

Decedent suffered a stroke in late November 1955. She was not hospitalized until a day or two after the actual storke. She was discharged from the hospital on January 7, 1956.

After her discharge from the hospital it became important for the improvement of her circulatory problems that she get up and move about. Fortunately, she was able to do so, but she did have to lie down to rest occasionally. She usually rested in the morning and again in the afternoon and retired at about 9 each evening.

During the period from 1956 to 1960, and particularly in 1957 and 1958, decedent had recovered sufficiently from her stroke so that she was able to lead a relatively active life. She visited Roselee for dinner, went shopping, or just browsed about antique stores. She traveled about, not only in Kansas City, but also to such places as Lexington, St. Joseph, and Arrow Rock. During that period she also often had guests over for dinner and occasionally had overnight guests, including Roselee, who would come to visit for several days or more.

In the early part of 1960 decedent's health gradually worsened. She became less lucid and her mind seemed confused. Her memory and her knowledge of contemporary affairs began to fail.

In July 1963, decedent was again hospitalized for circulatory problems and spent a few days in the intensive care unit. At this time Roselee was anxious to have her discharged because she believe that decedent would be better off in familiar surroundings rather than in the hospital. Decedent made rapid improvement and was released 4 days after her admission.

Decedent's general health slowly worsened from July 1963 through May 1967, when she finally died. Indeed, from the autumn of 1966 until her death in May 1967, she was confined permanently to bed.

During the period from her stroke in 1955 through her death in 1967, decedent required varying degrees of nursing care. However, as the years passed the amount of nursing care she received increased so that in the last days of her life nurses attended her around the clock.

During the last years of her life decedent lived in a house located at 614 West 57th Street, Kansas City, Mo. She had lived in that house since 1922 when her husband George W. Kerdolff, Sr., (hereinafter referred to as George, Sr.), had purchased it. George, Sr., had lived in the house from 1922 until his death on April 15, 1957.

The house was the Kerdolff family home and was where decedent and George, Sr., raised their three children, Roselee, Kathryn, and George, Jr. Having lived in the house for so many years, decedent naturally had a great affection for and deep emotional attachment to it and its adjoining garden.

After George, Sr.‘s death and pursuant to his will, the Probate Court of Jackson County, Mo., by order dated August 18, 1959, transferred title in the house from George, Sr.‘s estate to decedent. The Probate Court's order was filed with the recorder of deeds for Jackson County on August 27, 1959.

On October 13, 1959, decedent executed a warranty deed which was filed with the recorder of deeds for Jackson County on March 8, 1960. By such deed decedent transferred legal title in the house to Roselee and her spouse, Kathryn and her spouse, and George, Jr., and his spouse.

In March 1960, decedent timely filed a Federal gift tax return for the calendar year 1959 with the district director of internal revenue at St. Louis, Mo. On the gift tax return decedent reported that she had made on October 13, 1959, a gift of a one-sixth undivided interest in the house to each of her three children and one-sixth to each of their respective spouses. She reported the value of the residence as $30,000 and the value of each of the six gifts as $5,000.

Decedent's three children and their spouses did not pay anything for the house, nor did they charge decedent rent even though she continued to live in the house after having made the gift.

One purpose of the transfer had been to satisfy George, Sr's wish that the house would eventually go to his three children.

As the house would have been a very pleasant family home, various members of the family considered the possibility that one of the children's families might some day occupy it. However, at the time of decedent's gift in 1959, Roselee, Kathryn, and George, Jr. (with their respective spouses), owned their own homes.

Decedent was not knowledgeable about money matters and George, Jr., as executor of George, Sr.‘s estate, had control over decedent's funds. As a consequence Roselee and George, Jr., made decisions concerning payment of expenses to maintain the house. They paid minor repair bills and charges for ordinary upkeep out of decedent's funds. For instance, they considered such items as utility bills and exterminator bills to be decedent's expenses. However, Roselee, Kathryn, and George, Jr., paid the real estate taxes on the house for each year from 1960 to 1967. They also paid for insurance on the house and had agreed among themselves to pay for major improvements although none were ever made.

After the deed was executed Roselee, her husband, and George, Jr., looked at different apartments and investigated various nursing and retirement homes which might have been suitable as dwelling places for decedent. After visiting several nursing homes and talking to people with knowledge of nursing homes, Roselee felt that none of them would provide her mother with as much nursing care as she needed. Furthermore, Roselee was also unable to find a nursing home which was willing to provide as much nursing care as Roselee demanded. The children were more in favor of finding an apartment close to Roselee's house.

Prior to decedent's gift, the children made no investigation of possible dwelling places for their mother. They began looking for places only after she had made the gift. However, when her health began to fail in 1960, Roselee, Kathryn, and George, Jr., decided that since there was no real nor immediate necessity to move her, it would be better to keep her in familiar surroundings in the hope that her condition would improve. At this point the children effectively stopped looking for alternate living quarters for their mother. Despite their investigations, they never once actually applied for decedent's admission to any apartment, nursing home, or retirement home.

On July 3, 1967, a few months after decedent's death, Roselee, Kathryn, George. Jr., and their respective spouses, sold the subject house to Milton W. and Mary Elizabeth Adams. The deed evidencing that sale was filed for record with the recorder of deeds for Jackson County, Mo., on July 14, 1967. Milton W. and Mary Elizabeth Adams were not related to the Kerdolffs. On July 3, 1967, the house had a fair market value of $32,000.

OPINION

Decedent lived in the family house from 1922 until her death in 1967. In 1959 legal title in the house devolved upon her and in the same year she gratuitously transferred that title to her three children and their respective spouses. However, she continued to live in the house until her death.

Respondent contends that the gift in 1959 was a transfer in which decedent retained one of the life interests falling within the purview of section 2036(a)(1) and that, therefore, the house should be included in decedent's gross estate. Petitioner, on the other hand, argues that after the gift decedent did not retain any of the interests which would cause inclusion of the house in decedent's gross estate. After a careful examination of the record before us we believe that respondent must prevail.

Section 2036 provides in pertinent part as follows:

SEC. 2036. TRANSFERS WITH RETAINED LIFE ESTATE.

(a) GENERAL RULE.— The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a...